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Labour’s plans for infrastructure are good news for construction businesses, says shadow minister for business, energy and industrial strategy Rebecca Long-Bailey. She spoke to Infrastructure Intelligence editor Andy Walker about the party’s plans for the sector.

I met up with Labour’s Rebecca Long-Bailey in the leader of the opposition’s offices in Portcullis House on the day that the parliamentary work and pensions and BEIS committees delivered their damning joint report into the collapse of Carillion. Long-Bailey said the report was a vindication of Labour’s position on business and regulatory reform and the need for a fairer, more effective construction sector that better served the needs of the people that worked within it.

Unsurprisingly, she was keen to talk about the collapse of Carillion, its implications for the industry and what Labour would do differently. “With Carillion, we need to look at the behaviour of the company itself, corporate governance arrangements and how they were allowed to rack up significant debts and big holes in their pension pot, whilst at the same time paying out vast sums to shareholders and increasing the salaries of those at the top,” said Long-Bailey.

“There are also issues about how the government has dealt with procurement with Carillion,” she said. “It issued contract after contract despite Carillion issuing profit warnings, yet the government’s own strategic risk management policy on procurement was not to award contracts to firms that had issued profit warnings and to designate them as high risk. The government has a level of responsibility, not just in making sure that the contracts it procures are sound but also to look at the wider implications down the supply chain. Many contractors contracted with Carillion on the basis that they thought that this was a good deal and they were going to be paid, but there were no measures put in place to protect those firms in any way shape or form,” said Long-Bailey.

Labour’s shadow minister said that work needed to be done to create a government-led project delivery vehicle that can step in in the event that another Carillion goes bust and that suppliers also needed to have protection. “We need to ensure that the supply chain companies are protected, which is why Labour has said that project bank accounts should be used on all government projects, to ring fence the amount of money that government puts in and to ensure suppliers and sub-contractors are paid for the work that they do,” said Long-Bailey.

Late payment

Payment is a big issue for construction more widely and Long-Bailey wants to see prompt payment rules enforced across the industry. “In Carillion’s case we saw many sub-contractors not being paid,” she said. “It seemed that the standard was 120-day payment in many cases and that goes against the government’s own procurement policy of 30 days and the prompt payment code of 30 days. It’s simply not acceptable,” she said.

“What Labour would do in government is to ensure that any public contracts have a mandated 30-day period for payment and that 30-day period would be mandated in all of the contracts that the sub-contractors granted to their sub-contractors, so it rippled out across the whole sector,” Long-Bailey said. “That would also need to be enforced and the government or the government-led delivery vehicle would have to ensure that there was adequate monitoring of contracts to ensure that payment was being made within 30 days and there would have to be penalties imposed for those who didn’t.”

"In government, Labour will ensure that any public contracts have a mandated 30-day period for payment and that 30-day period would be mandated in all of the contracts that sub-conytractors granted to their sub-contractors, so it ripples across the whole sector."

Long-Bailey said that Labour also wanted to see a 30-day payment rule implemented in the private sector rather than the current voluntary code. “What we are looking at doing is setting up a system of buying in arbitration similar to the Australian system,” she said. “Obviously we will consult on that as soon as we get into power but there needs to be legal recourse for all types of businesses that are paid beyond the 30-day period. Quite often the risk for SMEs is passed down by bigger players time and time again who essentially use these smaller firms as a bank account by not paying them within the required period and that is not acceptable,” said Long-Bailey.

We need a health construction sector

Long-Bailey says that Labour wants to see a vibrant and healthy construction sector and sees it as crucial for the party in implementing its ambitious plans. “As a party, we have one of the most radical and transformational programmes in terms of infrastructure investment that we have seen in a generation and we have to have an industry that’s fit enough and robust enough to be able to deal with that, so we have the skills and the expertise that we need,” she said.

“The government has to play a key role in that. Not to deliver all of the services themselves, because we want to have that healthy relationship with the private sector, but government needs to have that level of experience at the top to know what to procure and why,” said Long-Bailey.

Construction firms will be pleased to hear Long-Bailey talk about working with the private sector. So, what would her message be to those firms working in sectors like rail and energy, sectors that Labour plans to bring back into public ownership. How would those firms be affected by Labour’s plans?

Labour's public ownership plans

“If we look at energy, one of the things that upsets me is the reporting of Labour’s proposals in the press as if we are going to nationalise every single thing under the sun,” she said. “We have not said that; what we have talked about is looking at the monopolies where there aren’t vast numbers of SMEs, sub-contractors and businesses operating. In the water sector we’ve got a number of water companies that essentially hold responsibility for delivering water in perpetuity and there’s no opportunity to go to a different water company if you’re not happy with what you are getting.

“At the top level we are looking at ensuring that we have some public and democratic local control, but in terms of investing in water and energy infrastructure and generation in the future, of course we want to have a fantastic relationship with the private sector because they will be the people who are building and constructing these projects. They are the lifeblood of our economy. There is certainly no intention whatsoever to create an overall nationalised construction programme,” she said.

"We want to have a fantastic relationship with the private sector because they will be the people who are building and constructing projects."

The major work needed to upgrade energy infrastructure would provide a significant amount of work for the construction sector, said Long-Bailey. “As well as upgrading the infrastructure we have, we also need to make sure that all networks are completely fit for purpose to deal with a future decentralised energy system and that is going to require a vast upgrade,” she said.

Long-Bailey was critical of the water companies for not investing enough in infrastructure, while paying out vast dividends to shareholders. “We’ve got to deal with the years of underinvestment and bring all of these infrastructures into the future. So, there will be a vast amount of work and a vast amount of expertise that’s required at the top, including advising government, to procure the services that are necessary from the construction sector,” she said.

Ambitious plans for sure, but where would Labour find the money to finance all of these improvements and upgrades? “Labour is proposing a national infrastructure fund with £250bn to completely upgrade our infrastructure but there will also be a knock-on effect in terms of private investment,” said Long-Bailey. “We don’t expect the government to subsidise everything, so we’ll have regional banks and a national investment bank to act as a catalyst to ensure that businesses can also partner to deliver a lot of these projects. For example, with energy generation we would expect the private sector to come in as well and crowd in their funding to upgrade certain elements of the generating capacity that we have got,” she said.

What about the thorny question of PFI and Labour’s plans to scrap the initiative as a procurement method? What does this say about the party’s commitment to working with the private sector?

PFI and private sector involvement

“I have no problem with the general principle of engaging with the private sector to get projects delivered,” Long-Bailey tells me. “But one of the main concerns I have with PFI is that the structure of the deals is essentially an accounting trick to remove costs from the government balance sheet. Hiding a debt by legally structuring a document in a particular way doesn’t get rid of the debt and the way that many of these deals were structured meant that they weren’t cost effective and they didn’t provide value for money. When you hear examples of schools paying £5,000 for a blind as part of an FM agreement, then that’s not palatable to the British public,” said Long-Bailey.

According to Long-Bailey, Labour and the public is unhappy about the cost of PFI. “The amount that the government has to pay back under many PFI schemes is more in the long term than it would have been if they had just done the initial outlay for those capital projects, so it would have been cheaper for public bodies and government to borrow rather than have special purpose vehicles borrowing themselves,” she said.

Labour is pledged to bring PFI schemes back into the public remit but would do so by judging each scheme on its merits, said Long-Bailey. “In bringing things back in house we will do it on a case by case basis, assessing the value for money aspects of each particular arrangement,” she said. “It will depend on how long there is left on the relevant PFI - some of them could be potentially be nearly expiring – and it would also mean repackaging some deals and refinancing them to try and get the finance at a cheaper rate. Finally, there would need to be an assessment of the excesses of particular deals and that would be a question for parliament to decide on compensation,” she said.

"In bringing PFIs back in house, we will do so on a case-by-case basis, assessing the value for money aspects of each arrangement. This could mean repackaging some deals and refinancing them."Rebecca Long-Bailey, shadow minister for business, energy and industrial strategy

Long-Bailey was keen to stress the importance of the construction sector to the UK economy. “Public projects are often the catalyst for the construction industry and it’s incumbent on the government to take that role very seriously to create a ripple effect through the construction sector and make sure that we have a sector ready to deal with the challenges that are facing it in the next 20-30 years,” she said. “These challenges include housing and also supporting the renaissance that Labour wants to see in manufacturing because there will also be construction of new manufacturing sites up and down the country. Add to that the energy infrastructure and energy generation projects and there’s a lot of work that needs to be done and we need to have a construction sector that’s properly resourced,” said Long-Bailey.

“Those resources the sector needs include skills,” she said. “We need to quickly address the skills shortages facing the industry, especially in areas such as engineering, because we are not going to have the people with the skills that we need to do the work that’s needed without investment in that area too,” said Long-Bailey.

Firms have nothing to fear from Labour

Finally, I asked Long-Bailey what her message would be to firms in the construction sector who were not sure about Labour and its plans. She was eager to say that firms had nothing to fear and everything to gain from the party’s proposals for infrastructure. “Our message to the construction sector is, we want to make sure that you can be the best that you can be,” she said.

“We want to provide you with the resources that you need, we want to use government as a driver for your business so that it will spur you on to become the big success story of tomorrow and we want to make sure that the landscape is fair, so that all businesses are treated in the same way and everybody has the same opportunity to achieve and go for work and projects as they should be able to,” Long-Bailey said.

Creating a level playing field where all firms had an equal chance of success showed that Labour was “the true party of business”, Long-Bailey said. “Our intention is to encourage growth, encourage prosperity and to provide a fertile business environment, not to have a 1% at the top exploiting everybody else. So, when we say for the many not the few, we don’t just mean people and communities, we mean businesses as well,” she said.